Author Topic: Need Advice on College Savings Plans  (Read 4685 times)

Futtee

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Need Advice on College Savings Plans
« on: October 13, 2014, 08:27:03 AM »
Hello 'stachers.  I have been reading MMM blog for some time now but am fairly new to the forum, and I have to say, it is so wonderful to have this supportive community and to be able to tap into a wealth of collective expertise.  Wow, I love the internets!

We are NY State residents.  We get tax deductions for 529 contributions, up to 10K, so it's a great vehicle for college savings.  Last December, we consulted with our financial planner about opening 529 and he naturally helped us enroll in the JP Morgan Advisor-Guided Plan.  I was aware of the Direct-sold plan that is managed by Vanguard, but didn't know enough at the time and trusted our FP to help us make the right choice.  I was shocked to receive our first statement and see the 5.25% sales fees.  We were not told about this before we opened the accounts.

I am now taking a self-directed investing immersion course and have discovered that the direct-sold plan outperforms the AG plan, and has significantly lower expense ratios (.16% vs. 1.16%).  It also does not have an annual maintenance fee if your balance is over $3K, while the AG plan charges a $25 annual fee regardless of account balance.

My question is, at this point, does it make sense to switch?  Balances are $5K in each and contributions will not be more than $5-10K per year for the next 14 -16 years, unless we receive inheritance or some other type of windfall.

Also, should I be concerned about trust issues with our FP?  When I first reach out to him about 529 accounts, I sent him the link to the lower-cost direct sold account, asking if I should go ahead and sign up for it, and his response was, "No, just send me the funds and I will take care of it for you."  It makes me feel a little angry.  Especially given the fact that he is not actively managing the 529 as it's in an age-based portfolio.

Thank you all in advance for your wisdom and expertise!!  It's much appreciated.  So many more questions to follow...
« Last Edit: October 13, 2014, 08:39:53 AM by Futtee »

matchewed

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Re: Need Advice on College Savings Plans
« Reply #1 on: October 13, 2014, 08:35:23 AM »
Yes it makes sense to switch.

Is your FP a fiduciary? Flat fee based? If not then yes there will be trust issues as your FP will have a distinct conflict of interest in making money on their own behalf rather than yours.

As you've already found out this stuff is not some crazy unknowable. You can learn it. Taking six months to figure out your best move will save you way more money than passing it on to people who may have an interest in using your money for their gain.

skunkfunk

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Re: Need Advice on College Savings Plans
« Reply #2 on: October 13, 2014, 08:55:06 AM »
1% difference in fees is huge. Ditch that FP and do it yourself.

trailrated

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Re: Need Advice on College Savings Plans
« Reply #3 on: October 13, 2014, 09:03:55 AM »
Don't dump more into it because you already have some invested, get out now and do it yourself. Let you FP know you are pissed, might even want to consider a new one that is looking out for your best interest instead of their own.

Futtee

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Re: Need Advice on College Savings Plans
« Reply #4 on: October 13, 2014, 09:37:08 AM »
Thanks for the advice everyone.  I really appreciate it.  Unfortunately this is just the tip of the iceberg, since all of our accounts are managed by this FP and the 529s have the smallest balances.

I just reread the email chain in which I sent him the link to the direct-sold account and asked him if it would be easier if I went ahead and opened the accounts myself (it was the end of last year and we were in a time crunch to get them opened so we could take the tax deduction).  His reply was "No, You have to open the account with the NY State appointed provider.  They are JP Morgan."  This is an outright lie.  This guy worked with my husband's now-deceased mother for many years, and has been managing our money for over 7 years.  We have not had a reason to distrust him until now.  I want to give him the benefit of the doubt, which makes me wonder…is it possible that a financial planner would simply not know that there is a lower-cost, service-charge-free 529 option available?  I find it hard to believe that that is the case. 
« Last Edit: October 13, 2014, 09:53:45 AM by Futtee »

TomTX

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Re: Need Advice on College Savings Plans
« Reply #5 on: October 13, 2014, 09:55:07 AM »
No, you HAVE to send him the money, so that he can take 5% up front.

Not.

The guy sounds like an old school financial rip off type.

trailrated

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Re: Need Advice on College Savings Plans
« Reply #6 on: October 13, 2014, 11:16:22 AM »
is it possible that a financial planner would simply not know that there is a lower-cost, service-charge-free 529 option available?  I find it hard to believe that that is the case.

Two possibilities:
1) He knew, and sold you the more expensive option anyways for personal gain with disregard for your best interests
2) He had no idea and did what he thought was best

Either way sounds bad. I had a friend that sold me universal life insurance and told me it was "what I needed" because I was about to be a dad. After looking into it and the crazy fees and how much I was being screwed I called him out on it. He tried to tell me it was a good option and I pulled out everything and set up a 20 year term policy with a different company. We are still friends but I will never do business with him again.

At the end of the day you need to ask what is more important: your own financial well-being, or keeping your relationship between you and your  financial adviser "comfortable". I would go with the former every time.

Futtee

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Re: Need Advice on College Savings Plans
« Reply #7 on: October 14, 2014, 10:50:27 AM »
Thanks for the insights 'stachians.  We have a conversation set up for tomorrow.  It will be awkward, but I just have to get over that. 

Numbers Man

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Re: Need Advice on College Savings Plans
« Reply #8 on: October 15, 2014, 03:53:47 PM »
Thanks for the insights 'stachians.  We have a conversation set up for tomorrow.  It will be awkward, but I just have to get over that.

The conversation should be awkward for him because your're mad that his fee was excessive.

Druid

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Re: Need Advice on College Savings Plans
« Reply #9 on: October 15, 2014, 05:12:15 PM »
I believe Certified Financial Planners have to disclose commissions. I also second the idea of finding a financial planner that has an hourly fee and no commissions.

I have been thinking about becoming a financial planner, but I would hate to end up on commission. It seems like people making under 200k should be able to plan there own finances based on my 2 minute intro:

First $17,500 goes to 401(k). First $55,000 for self employed :(
Second $5,500 goes into IRA(if within income range);otherwise skip this step
Max out education account(apparently direct sold plan)
The rest of savings goes to Vanguard index funds

Perhaps I am missing something, but this would cover most people. Anyway I wouldn't know how to feel useful as a financial planner after the first 2 minute intro.

Futtee

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Re: Need Advice on College Savings Plans
« Reply #10 on: October 18, 2014, 05:01:06 AM »
Druid, LMAO.  You should start your own business and call it "Financial Planning in Under 2 minutes."  For the middle class earner.  Perfect.  I'm ready to kick my FP to the curb.

We did have the conversation and he told me that he was not familiar with the different 529 plans and that he did not intend for us to buy the more expensive product.  I don't know if I believe him or trust him.  But this is just the tip of the iceberg.  Future posts to come.

matchewed

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Re: Need Advice on College Savings Plans
« Reply #11 on: October 18, 2014, 10:00:54 AM »
Druid, LMAO.  You should start your own business and call it "Financial Planning in Under 2 minutes."  For the middle class earner.  Perfect.  I'm ready to kick my FP to the curb.

We did have the conversation and he told me that he was not familiar with the different 529 plans and that he did not intend for us to buy the more expensive product.  I don't know if I believe him or trust him.  But this is just the tip of the iceberg.  Future posts to come.

Sure you could give your FP the benefit of the doubt and risk the fact that their lack of knowledge will cost you money, but regardless of their knowledge level they're costing you money. To the curb with him. Educate yourself with the basics and save tons of money over your investing lifetime.

wtjbatman

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Re: Need Advice on College Savings Plans
« Reply #12 on: October 18, 2014, 02:11:33 PM »
I am now taking a self-directed investing immersion course

I don't know even what the hell you just said. Save yourself the time/money/energy and start reading the Bogleheads Wiki @ http://www.bogleheads.org/wiki/Getting_started

Futtee

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Re: Need Advice on College Savings Plans
« Reply #13 on: October 20, 2014, 04:39:46 AM »
Thanks Batman.  I'm in the middle of reading the 4 Pillars of Investing, and this looks like a great companion resource.

P.S.   I also don't know what the hell I am saying most of the time either, so thanks for your patience.